BUSINESS

Rachel Reeves Faces Cabinet Anxiety Over Market Chaos Amid China Trip

January, 10, 2025-11:28

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Rachel Reeves Faces Cabinet Anxiety Over Market Chaos Amid China Trip

Chancellor Rachel Reeves is facing increasing pressure as she heads to Beijing despite growing concerns over the UK's fiscal position. Critics have demanded she cancel the trip and remain in the UK to address the country’s economic challenges, as the yield on a 10-year gilt has climbed to 4.85%, and a 30-year gilt rose to 5.41%. Meanwhile, US job data indicates that inflation and interest rates will remain high for longer, adding further strain to Britain’s financial outlook. Growing Concerns About the UK's Economic Outlook.

Economists are warning that the UK's growth is stalling, with persistent inflation complicating the Bank of England's ability to reduce interest rates. This leaves Chancellor Reeves with difficult choices: either cut spending plans or increase taxes further. The situation has drawn comparisons to the 1976 crisis, when the UK was forced to seek a bailout from the IMF, triggering fears of a similar financial crisis. The combination of a weakening currency and rising gilt yields has particularly alarmed experts. Pressure Mounts from Within the Cabinet

Within her own Cabinet, there are signs of waning confidence in Reeves' leadership. A senior Cabinet source stated that “they’ve lost the plot,” while others expressed growing concern, drawing parallels to the 1976 crisis, when Chancellor Denis Healey had to abandon a trip to address a Sterling crisis. As Reeves travels to China, there is widespread unease about her absence during such a critical period for the UK economy. China Visit Defended by Culture Secretary

Despite mounting calls for her to remain in the UK, Reeves’ trip to China is defended by Culture Secretary Lisa Nandy. Nandy argues that strengthening the UK’s relationship with China, the world’s second-largest economy, is essential for maintaining competitiveness, although she acknowledged the need to challenge China on human rights. Critics, however, argue that Reeves should focus on the economic crisis at home rather than pursuing international relations amid such domestic instability. Warnings of Economic Fallout and Austerity Risks

The continued rise in borrowing costs has raised concerns that the record tax increases implemented in the Budget may be absorbed by these higher costs. Shadow Chancellor Mel Stride criticized the government’s fiscal policies, suggesting that the market turbulence would negatively impact mortgage costs and lending. Meanwhile, experts are drawing alarming comparisons to the 1970s, when Britain faced a toxic combination of a weakening currency and rising interest rates, leading to a devastating economic collapse that ultimately required an IMF bailout. With growing fears of austerity and economic instability, many are questioning whether Reeves' trip to China a distraction from the urgent challenges is facing the UK economy.